Monday, June 20, 2011

Household deleveraging continues

- by New Deal democrat

The Federal Reserve's report on household debt burdens was released yesterday, covering the January - March quarter of 2011. According to the bank,
The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
Both measures declined substantially again, as they have almost relentlessly since the end of 2007. I've combined them into a single graph:

Both debt service payments (blue line, left scale) and total financial obligations (red line, right scale), are now less than about 3/4's of the last 30 years -- all but the early 1980s and a few years in the early 1990s.

If this rate of decline continues, then by the end of this year, both of these will be near their all time lows, and may surpass them by next spring.

As I have pointed out previously, a lot of this reflects refinancing debt obligations at lower rates -- which is why the overall debt owed by American households has not contracted nearly so much as the percent of disposable income needed to pay it.

In the longer term, this is good for households, and good for a sustainable economic expansion.